2016 (1) TMI 1279 - AT - Income Tax

TDS u/s 194H - liability to deduct tax at source on the amount of guarantee commission paid to the bank - Held that - Principal agent relationship is a sine qua non for invoking the provisions of Section 194H. While it is termed as guarantee commission , it is not in the nature of commission as it is understood in common business parlance and in the context of the section 194H. This transaction, in our considered view, is not a transaction between principal and agent so as to attract the tax deduction requirements u/s 194H. See case of M/s. Kotak Securities Ltd. 2012 (2) TMI 77 - ITAT MUMBAI - Decided in favour of assessee

Summary

Issues:
1. Whether the assessee was liable to deduct tax at source on the amount of guarantee commission paid to the bank under section 194H of the Income Tax Act.

Analysis:
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The main grounds of appeal were related to the deduction of tax at source on guarantee commission paid to the bank and the deletion of interest under section 201(1A) of the IT Act. During the hearing, arguments were presented by the Authorized Representative (AR) for the Assessee and the Departmental Representative (DR) for the Revenue.

The primary issue raised in this appeal was whether the assessee was required to deduct tax at source on the guarantee commission paid to the bank, as per section 194H of the Act. The Assessee argued that a similar issue had been decided in the case of M/s. Kotak Securities Ltd., where it was held that TDS was not required on such payments. The Departmental Representative, however, relied on the order of the Assessing Officer (AO).

The Tribunal noted the judgment in the case of M/s. Kotak Securities Ltd., where it was established that there was no principal-agent relationship between the bank and the assessee regarding guarantee commission payments. The Tribunal concluded that the guarantee commission was not in the nature of commission as understood in common business terms and, therefore, the assessee was not obligated to deduct TDS under section 194H. As there was no requirement for TDS deduction, the question of levy of interest under section 201(1A) did not arise. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) based on the precedent set by the M/s. Kotak Securities Ltd. case and dismissed the appeal filed by the Revenue.

In conclusion, the Tribunal ruled that the assessee was not liable to deduct tax at source on guarantee commission payments to the bank, as per section 194H of the Income Tax Act. The decision was based on the judgment in the M/s. Kotak Securities Ltd. case, and the appeal filed by the Revenue was dismissed accordingly.